The Market Abuse Regulation (MAR), which will shortly be three years old, is intended to increase market integrity and investor protection by reducing the incidence of insider dealing, unlawful disclosure of information and market manipulation.
MAR is commonly applied to the sharing of information within companies or with their advisors. However, it also regulates the sharing of information with the investor community in an activity which is known as a market sounding.
In brief, a market sounding is a communication of information to potential investors, prior to the announcement of a transaction, in order to gauge the interest of potential investors. Typically, a market sounding is conducted by a third party acting on behalf of the issuer to which the information relates.
MAR introduces a prescriptive regime for conducting market soundings, intended to harmonise practice across the EU.
These obligations significantly increased the compliance burden on both the disclosers and recipients of information in a market sounding but, if followed, afford ‘safe harbour’ protection against improper disclosure of information.
An important point is that the regime may be triggered even when the information does not meet the threshold to be considered by the discloser to be ‘inside information’.
The obligations on the disclosers and recipients of information are too many to fully explore in this article, but they include:
For the discloser:
- Considering and documenting what information should be disclosed and whether it constitutes inside information
- Confirming that the recipient is the appropriate person to receive the market sounding and consents to do so
- Communicating to the recipient whether or not the information is deemed to be inside information and, if so, informing the recipient of their obligation to keep it confidential and not to trade in the affected securities
- For inside information, communicating an estimate of when the information will cease to be inside (when it is ‘cleansed’)
For the recipient:
- Ensuring that information is disseminated internally on a need-to-know basis and all recipients are aware and fully trained regarding their obligations
- Assessing whether information received constitutes inside information, even if the discloser does not consider it to be such
As with MAR generally, it is essential that a defined and rigid process is followed carefully in order to avoid risk of regulatory breaches and the serious consequences that can follow. Detailed documentation of market sounding activities must be kept and retained for five years (by both discloser and recipient), including the lists of all persons receiving information, date and time of the sounding and any follow-up contacts.
Insidertrack for Advisors has been designed to assist both disclosing and receiving parties meet their regulatory obligations under MAR. In addition to managing confidential and insider lists for multiple issuers, the solution controls and automates the process of conducting a market sounding, including managing acceptances and generation of communications.